The time is now for APRA-regulated entities to prepare for CPS 230
From 1 July 2025, entities regulated by the Australian Prudential Regulation Authority (APRA) must comply with a new Prudential Standard for Operational Risk Management, which outlines review of operational risks, third-party management and business continuity planning. Experts from OCG outline why entities should be timely with their prepartions.
The forthcoming Prudential Standard, CPS 230 Operational Risk Management, will direct how regulated entities manage operational risks, resilience, and business continuity. CPS 230 aims to ensure that an APRA-regulated entity is resilient to operational risks and disruptions.
The changes relevant to this operational uplift are diverse and complex, and require thorough assessment, effective reform and ongoing monitoring. The clock is well and truly ticking for complete implementation and navigating these new standards poses a necessary, but understandably daunting, task.
Key considerations for successfully implementing CPS230 include:
1) Operational Risk Management
Operational risk management is crucial for financial institutions to navigate uncertainties and protect against potential disruptions. By identifying, assessing, and mitigating operational risks, organisations can safeguard their reputation, financial stability, and regulatory compliance.
CPS230 demands a proactive approach to operating risk profiles and internal controls that permeate every level of an organization, from senior management to frontline staff. This approach aims to enhance resilience and foster a culture of risk awareness and continuous improvement.
First step: Plan a roadmap to CPS230 compliance by conducting gap-analysis between existing practices and updated requirements.
2) Outsourcing and Third-Party Management
Outsourcing and third-party risk management are critical components of operational resilience under APRA CPS 230 for financial institutions. These practices involve robust controls and assessments to mitigate risks associated with external service providers. By conducting thorough due diligence, establishing clear contracts, and implementing rigorous monitoring and compliance measures, institutions can safeguard against disruptions and regulatory violations.
In today’s interconnected financial landscape, effective management of third-party risks is indispensable for maintaining stability and safeguarding against potential threats.
First step: Identify all material service providers as per CPS 230's broader criteria. Review and update outsourcing policies and contracts to ensure compliance with the new standards.
3) Business Continuity Planning
Critical incident management, resilience, and Business Continuity Planning (BCP) are vital components under APRA CPS 230. Setting tolerance levels for disruptions to critical operations ensures financial institutions can effectively respond and maintain essential operations during crises.
By emphasising response and recovery planning, rigorous testing, effective communication, and learning from incidents, institutions minimise operational impacts and demonstrate robust preparedness. Coordinated efforts and adaptive strategies enhance resilience against evolving threats, instilling confidence among stakeholders in the institution's stability and reliability in challenging circumstances.
First step: Review current Business Continuity Plan and uplift framework to approach critical operations and operate within maximum tolerance levels.
Operational Resilience
CPS 230 is more than just a regulatory requirement; it is a key element in building operational resilience. Entities particularly benefit from a proactive approach to operational risk reviews, especially in anticipation of impending CPS230 obligations. This foresight allows for the proactive review of frameworks and procedures, ensuring alignment with forthcoming regulatory requirements and enhancing overall operational readiness.
As financial operations grow more complex and interconnected, CPS 230 responds to this growing complexity by providing a structured approach to operational risk management. The goal is to foster a robust risk management culture that can withstand the challenges of modern financial operations. As the financial landscape continues to evolve, adhering to CPS 230 will remain critical for ensuring the long-term stability and sustainability of financial operations.
At OCG, we combine deep industry knowledge with practical experience to help our clients navigate CPS 230 effectively, ensuring compliance readiness and fostering operational excellence.
